Friday, November 6, 2020

Avoiding Stupid Investment Mistakes During the Pandemic

Within the first month of moving into our house with my then-girlfriend, now wife, I shrunk one of her favourite sweaters. Over the next eight years, I have only managed to replicate this embarrassing feat once more. I attribute this improvement to my choosing a very risk-averse approach of air drying almost all of my wife’s shirts, sweaters and pants, rather than risk shrinking another item in the dryer. My wife finds my over-reaction of barely ever using the dryer on any potentially shrinkable items humorous. Now that we’re both working from home out of the office in our basement, after I’ve put the clothes on a drying rack and start the dryer with mainly my clothes and those of my kids, my wife often checks what is on the rack, and moves the majority of her clothes into the dryer. She then usually laughs at me and tells me not to worry about shrinking her t-shirt, pajama pants, pullover, etc.. Despite these repeated assurances from her, I continue to put the great majority of her clothes on the rack each time I perform this part of the laundry.

I share this anecdote with you as I'm worried about making preventable mistakes since my portfolio has been negatively impacted this year due to the coronavirus pandemic. Between Canadian banks being told by the national regulator not to increase their dividends, A&W suspending and then decreasing their distribution due to lower traffic in their restaurants, and the disruption to retailers caused by local restrictions that has meant landlords like Brookfield may have to rethink their distributions, I've been feeling the will to undertake more transactions than I normally would in order to avoid more dividend cuts. Instead of going crazy, and totaling revamping my dividend growth strategy in the middle of this pandemic, I am making a conscious choice to hold off on making any huge changes until after covid-19 is behinds us. A large part of my reasoning to ride this out is based on my desire to avoid making mistakes similar to those of shrinking my wife's clothes. 

To avoid making a bunch of mistakes in the middle of the covid-19 pandemic, I decided to focus on my process for choosing investments. By following the short checklist below, I hope to simplify my investment decisions and keep focused on my long-term goal of financial independence through dividend growth investing.


1.       Does the company pay a dividend/distribution of at least 2%/3%?

2.       Has the company increased their dividend/distribution by at least 5%/2% in the last 12-months?

3.       Is the dividend/distribution sustainable as evidenced by a TTM EPS/FFO payout rate of 80%/90% or less?

4.       Is the price of this company reasonable indicated by a P/E or P/FFO of 25X or less?

5.       If this is a new position, what exposure does this company provide that current companies in my portfolio do not?

6.       If this is a new position, what is the thesis of why this company is undervalued?

Here's hoping that after covid-19 is behind us, my investment portfolio looks more like an organized, well sorted drying rack, like that curated by my wife today.

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